Too Basic To Ignore

Scarcity & Spiralling Prices Bring An Industry To Its Knees

With bumper harvest in the 2013/14 production season being heralded from every quarter in the government, the Ministry of Trade (MoT) decided to suspend the import of wheat for the season causing shortage in the market, leading private suppliers to introduce higher prices. This is reflected in bread shortage in the market. The ministry is trying to solve the problem by ordering import and aggressive domestic purchase, reports MIKIAS MERHATSIDK, FORTUNE STAFF WRITER.

Almost empty shelves of breads are increasingly visible in bakeries around Addis Abeba as is the case with the Zefco Bakery around the Lancia area on the Serra Leone Street.

People waiting to get their hands on the new batch of bread baked in one of the Shoa Bakery outlets located around the Meshualekia area along the Serra Leone Street.

The price of sacks of wheat at Ehil Berenda in Addis Ketema District increased by an average of 200 Br in the last two months.

Zefco Bakery, located in a building with the same name on Serra Leone Street around the Lancia area is a company with a production capacity of 50qls of bread each day. The bakery has around 30 employees and was working with less than 20pc of its capacity even before further recent shortages of wheat flour from its designated supplier. Following this it has not been able to satisfy demand from its customers and its survival is now in doubt.

In the morning of Wednesday, April 9, 2014, when Fortune visited the bakery at around 9:00am what was left of its morning batch of bread was on display. It was only able to bake half of what it had in the past and it was all already sold, apart from a few Minnini breads sold for six Birr each pack.

“Shortage of input hence bread, in our bakery, started since March 20, 2014, when we receive just 99qls for 15 days rather than the usual 225qls that we used to get according to our quota,” says Alemayehu Abebe, general manager of Zefco Bakery.

To cover at least some of the gap the bakery occasionally buys a few quintals of flour from the private sector despite the huge price involved, increasing by 150 Br to 1,050 Br for a quintal.

“Besides what we get from the government scheme, we use it to bake Minini and Karre types of breads so that our shelves will not be empty,” the general manager told Fortune.

Alemayehu was talking about a government market chain that began in 2010/11 and aimed to stabilize the bread market and help the lower income members of society get cheaper bread. Through this scheme the bakery gets wheat flour from a designated flour factory provided with subsidized wheat to deliver it on a predetermined price. According to this scheme the government supplies flour factories with wheat at a subsidized price of 550 Br for a quintal of wheat. These mill houses have their wheat subsidized by around 300 Br per quintal that they grind, Back and then sell on to designated bakeries at a price of 796.20 Br for a quintal of wheat flour.

The bakeries then sell a hundred gram of bread for 1.20 Br each using the flour they get through this scheme. But in the last two months the smooth operation of this market chain has been facing an obstacle that, like Zefco, may well put many bakeries out of business.

According to a 2010 data from the Food & Agricultural Organization (FAO) STAT, Ethiopia is the largest wheat producer in Sub-Saharan Africa, producing three million tonnes that year. The production in the 2011/12 fiscal year was 3.147 million tonnes and it reached 3.3 million tons last year.

The Ethiopian Grain Trade Enterprise (EGTE) imported 600,000 MT of wheat last season, and provided this to mills at a subsidized price to facilitate supply of affordable bread for consumers, according to an April 2014 research by techno serve, an international consulting firm, for the Agricultural Transformation Agency (ATA). The country that suffers from a significant trade deficit, which was 7.9 billion dollars in 2011,12 imported wheat with an estimated cost of 230 million dollars in 2012/13. To curb this trend EGTE has been instructed to substitute imports with a domestic-sourced supply of wheat.

The Enterprise’s import exit strategy estimated that this would take five years, finishing in 2017/18. A reduction in imports was planned based on a large increase in domestic marketed supply this year, but it seems unlikely that targets were met.

The Enterprise has been asked to purchase 250,000 MT of wheat from the domestic market this season, an amount that would account for 30pc of Ethiopia’s marketed domestic wheat. This is a significant change for the EGTE, which only re-entered the domestic wheat market last season and purchased 9,000 MT, according to the research.

Until March 13 though the EGTE was only able to purchase 6,200 MT and the total season’s purchase at current rate will be 9,000 MT. By March 69% of the season’s wheat has normally been brought to market each year, the research states.

The Enterprise’s import exit strategy estimated production growth of 16pc per and supply growth of 26pc per year this season through to 2017. And the Central Statistical Agency (CSA)’s December 2013 forecast estimates that this season’s wheat production will be 18pc up on last season’s. Yet initial data suggests growth may have been lower. Wheat belt production in Arsi and Bale has grown just 5pc from last season according to anecdotal evidences.

These developments have made the decision by the Ministry of Trade (MoT) to suspend the import of wheat for the season, which is partially influenced by availability of limited Foreign exchange according to sources in the ministry, a risky gamble that did not pay off, creating problems in the market.

In about the same time, in the morning of April 9, there was a high-level official meeting in the Ministry of Trade (MoT). The meeting was chaired by Ali Siraj, State Minister for Trade and included Wondirad Mandefro, State Minister for Agriculture and officials from the Enterprise and regional trade and agricultural offies.

According to sources in the Minstry, this urgent meeting was called by the MoT and targeted a resolution of the wheat shortage by increasing domestic purchasing levels from Ormia and Amahara farmers.

In an attempt to rectify the situation, the Public Procurement and Property Disposal service has also announced a bid for the supply of two million quintals of wheat on March 28, 2014. Unlike previous years, the government did not buy wheat from abroad, deciding to change its stance after a record harvest 18pc higher than expected.

However, it was still a too little, too late for businesses like the Abo Bakery located around the Asko Chereta area in Kolfe Keranio District. The Bakery was established in 1967 and its quota of four quintals was halved two months ago according to Sultan Redi, owner of the Bakery and president of the Addis Abeba & Surrounding Areas Bakeries Association. Working with half its capacity and nine workers, the Company produces and supply its product in its two nearby branches.

“The shortage started before a month or so,” sultan told Fortune. “And since the profit margin is almost nothing or unprofitable, bakeries don’t want to continue producing bread by buying flour from private suppliers.”

The private market wheat price had been stable for some time but following the recent shortage in the supply of wheat and flour in the governmental scheme the price of a quintal of wheat flour soared to 1,500 Br from 900 in the space of a month, according to Sultan. One quintal of wheat flour produces 1,050-1,120, 100 gram of breads, depending up on the type of flour according to estimates by bakeries. Bakeries are now receiving less than 50pc of the wheat flour they used to get.

“Since there is shortage of bread in the bakeries we are advising members to sell their bread during the morning and evening time so that the public will access the commodity at essential times of the day,” says Sultan.

The Association expects the shortage to become more acute after the lent ends and when more urbanites will recommence eating bread for breakfast.

Amakele Yimam, Public Relations & Communications director at the MoT has a different take on the situation. What is witnessed in the market is a problem of market structure not wheat shortage, according to him. “We are distributing less wheat to avoid wastage, especially in rural towns,” he told Fortune. However this is a slap in the face for businesses like Zefco Bakery, which have sent half of its staff of 30 workers on forced leave. “We cannot continue like this, we are having a hard time even to pay salary for our workers,” Alemayehu complains.

In the last fiscal year 5,590,685ql if wheat was distributed across the country by EGTE and 87.5pc of this was given to flour factories.

At Ehil Berenda, in Addis Ketema District, the single biggest cereal marketing spot in the city, wheat shortage is more visible in the last four weeks. And the price has increased by 150 Br to 200 Br during this time, according to Girma Bogale, who has been in the cereal trading business for the last twenty years and who is also the auditor of the Addis Abeba Grain Traders Association. And he blames this price surge on inadequate supply from government bodies that has been taken advantage of by grain brokers.

But this should not be the case according to the communication director at the MoT.

“The government will not subsidize wheat for ever, in fact we are working towards gradual exit from this scheme.” Nor do the growing number of wheat mills expect to benefit from subsidized grain indefinitely, according to Amakele. In fact, companies like Shoa Bakery and Flour Factory, the biggest bread supplier in the capital, have specifically requested permission to operate outside of this governmental chain.

“We have plans to produce different varieties of high quality bread. And we have submitted a letter to the Ministry of Trade stating our wish to work outside of the government supplied wheat and flour market and they haven’t give us an answer yet,” Tsehaye Zemu, general manager and owner of Shoa bakery, told Fortune.

Shoa Bakery has 1,220 employees that work in one industrial bakery, 11 baking facilities, six shops and a plastic factory that produces the plastic bags that the company uses to sell its products in.

In addition to this Shoa had organized around 80 small and micro institutions to distribute its products on a commission basis under the name ‘Shoa Bread’s Distribution Centres’. However this number decreased to 43 three weeks ago as a consequence of the flour shortages.

“We used to deliver around 80qls of bread every day for these 80 shops but now we deliver somewhere between 35-40qls per day for the 43 shops,” Tsehaye explains despondently. “We have a capacity of producing around 500qls of bread and we used to produce around 400qls of bread every day, before the shortage. But now we are producing less than half of this number.”

The 57-year-old company’s supply of flow is nothing compared with the 5,808qls it used to receive every month before the shortage. Yet the amount of wheat it gets from the scheme has in fact increased by 1,000 starting Thursday afternoon April 10, 2014, to 6,414qls per month.

But shoa can operate outside of the system and go on its own as long as it don’t take wheat from the government, according to Amakele. Yet officials at the Ministry, who demanded to remain anonymous, told Fortune that the government is not sure how to handle the requests of these big bakeries that are responsible for the majority of the bread supply in Addis Abeba.

This approach may also entice other companies frustrated with the government scheme. For example, AFIA food complex used to get 40,000qls every 15 days before March, but now it only gets 8,000qls. The company, which was established in 2003 with a daily production capacity of 5,000qls and 350 workers, is only operating at around 10pc of its capacity.

“The government should give priority for wheat production as it has done in the past with other crops like sugar cane and should give better incentive and support for wheat growers so that there is enough product in the market,” according to Taha Hassen, owner of AFIA food complex and President of Ethiopian Flour Mills Association.

“If the expected import of Wheat does not arrive soon the problem will be severe,” Taha told Fortune.

Even though wheat productivity increases from time to time, it is unable to keep pace with growth, in the sector according to the research by Techno Serve.

Unless the government succeeds in buying wheat domestically until the arrival of imported produce, then the next few months could well prove to be a nadir for businesses like Shoa bakery and its customers. One of these is Wubshet Awash, a supervisor at Lom Lisk café around the Meskel Flower Hotel, on Gabon Street. Wubshet normally buys 30-40 breads a day for 1.20 Br each for the cafe. But because the bakery has not been able to supply these in recent weeks, he has been forced to buy from retailers who buy from bakeries, the limited bread they produce, before selling it on to consumers at a price of 1.50 Br for the same bread.

In fact since the shortage the cafe has limited the number of bread that it provides for each customer. “We will not give more than two additional breads for each customer who orders food items like fool and tomato sils,” Wubshet told Fortune.